Divvying up the petro-dinars

September 13th, 2005

Iraq’s constitutional process has nearly foundered over several areas of dispute, including “federalism.” The federalist arrangements include apportionment of oil and natural gas revenues. Under the compromise proposed by Kurdish and Shiite negotiators representing the majority of Iraq’s population, natural resources belong to all Iraqis, and revenues from existing oil production would be distributed countrywide on a per capita basis. Future development would be overseen jointly by the federal and regional governments. However, the draft constitution assigns residual powers to the regions and declares that in disagreements over shared powers, “the priority will be given to the region’s law.”

This somewhat muddled setup may be a reasonable compromise–it assigns greater weight in resource matters to the federal government than does Canada’s constitution–but the Sunni Arabs, heretofore Iraq’s ruling class, aren’t satisfied. Not coincidentally, their region historically hasn’t yielded much oil. They appear prepared to wreck Iraq’s constitutional process rather than acquiesce.

For two Albertans who have followed Canada’s resource politics for decades, this sounds depressingly familiar. It comes amid renewed demands that Alberta share “some” of its wealth–along with warnings that Canada could fall apart if we don’t. Most commentators ignore that Alberta already transfers roughly $11 billion net per year, nearly seven per cent of its GDP, to the rest of Canada.

The Iraq-Canada analogy shouldn’t be pushed too far. Ontarians and Quebecers aren’t Iraq’s Sunni Arabs, nor are the federal Liberals Saddamite Baathists. The Sunni Arabs are a small minority that ruled Iraq self-servingly and with an iron fist. In Canada, the central region contains the majority of the population, while the hydrocarbon-producing regions were historically sparsely populated. Most importantly, Canadian disputes are resolved constitutionally rather than through tyranny, mass murder and rampant corruption.

Still, Iraq’s constitutional challenges show how widely separated, almost wholly dissimilar countries can breed parallel conflicts over who controls and who benefits from natural resources. Iraq and Canada each feature a disconnect between economic productivity and political power. It’s one of Canada’s major political fault lines. Iraq is revealing a similar fault line. But will the associated conflict be mitigated through the new constitution, or perpetuated by politics, as it has been in Canada?

The Sunni Arabs’ cliched demands to “share the oil wealth” appear driven by the usual combination of envy, greed and ignorance. In both countries, broad segments of society assume the “wealth” is just sitting there, at once unearned and effortless to extract, like a big lake of oil lapping gently along the backyards of the lucky few, who seamlessly transform the goo into cash by filling a bucket and walking to the bank.

Among Iraq’s Sunni Arabs, it’s accentuated by the sheer laziness of the assumption that Iraq’s oil wealth is forever limited to existing oil fields in the Kurdish north and Shiite south. Iraq unquestionably holds immense undiscovered hydrocarbon potential.

Fewer than 2,500 wells have been drilled in Iraq’s 80-year petroleum history. Canada’s industry, by contrast, will drill about 24,000 wells this year alone. Vast areas of Iraq haven’t even been physically surveyed, let alone subjected to seismic analysis, drilling or development. The overlooked areas include most of the Sunni Arab-dominated provinces. Commentators lamenting the Sunni provinces’ lack of oil wealth should really be saying that nobody has bothered looking for oil there.

This demonstrates another corrosive aspect of envy: instead of working to attract international investment and launch drilling programs on their lands, the Sunnis are obsessing over how much they can pry from the Kurds and Shiites. Eerily familiar.

That’s where federalism could come to the rescue. Canada’s federalist experience demonstrates that lower-level jurisdictions, closer to the resources, are far better at resource management, conservation and wealth generation than are remote bureaucracies. Canada is a living rebuttal to those fretting over Iraqi federalism. Central governments in regional nations seem to breed resentment and disunity in direct proportion to how intrusively they govern and attempt to control people’s lives.

Far from representing the Achilles’ Heel of Iraq’s constitution, federalism could be the mechanism to prevent the country’s break-up and possible civil war. As well as providing a formula for divvying up those petro-dinars.

—Calgary Herald

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